Testimony at the trial which is expected to last several months will begin on Wednesday.

The authorities said some of the money from Holy Land, which allegedly wanted to destroy Israel, was channelled to the families of suicide bombers.

James Jacks, a prosecutor, said in opening statements that the foundation was created to raise money for the Palestinian group Hamas.

The charity's leaders lied about their purpose "because to tell the truth is to reveal what they were all about: the destruction of the state of Israel and replacing it with a Palestinian Islamic state", Jacks said.

'Focused on children'

The defence claimed the leaders had sought advice on staying true to their humanitarian mission in Palestinian neighbourhoods and did not knowingly aid Hamas.

The foundation had approached US officials on how to operate in the Middle East without violating any laws, it said.

Defence lawyers said Holy Land also shared some of the same Middle Eastern charities with the US Agency for International Development (USAID), and not one of them was on any "terrorism" watch list.

Nancy Hollander, lawyer for Shukri Abu Baker, the foundation's chief executive, said Holy Land had "nothing to do with politics" and was focused on "children in need".

"They were never told to stop working with anyone," she added.

US federal agents raided the foundation's offices and seized the charity's assets in December 2001, soon after the September 11 attacks on the US.

After the US froze Holy Land's assets, scores of Muslim charities and leaders were implicated in the administration's attempt to block what it considered more funnelling of funds to terrorist groups.

This has been criticised by many Muslims as being fuelled by anti-Muslim prejudice made worse after the September 11 attacks.

"The Bush administration is arguing that providing medical and nutritional assistance to sick and starving Palestinian children amounts to supporting terrorism," said Khalil Meek, president of the Muslim Legal Fund of America, at a news conference on Tuesday.

He added that the case was "stretching the rules of evidence in our court system to the point of absurdity".